When a security is added to a portfolio the appropriate return and risk contributions are:
A) the expected return of the asset and its standard deviation.
B) the most probable return and the beta.
C) the expected return and the beta.
D) the most probable return and its standard deviation.

Question

Quizplus · Accepted Answer

The appropriate return and risk contributions when a security is added to a portfolio are the expected return of the asset and its beta. The expected return provides a measure of the average return the asset is expected to generate, while the beta measures the asset's volatility in relation to the market, thus indicating its contribution to the portfolio's overall risk.

When a Security Is Added to a Portfolio the Appropriate